I exited my position in Asta Funding (ASFI) last week when the share price made a small jump after the company announced that it settled it’s debt obligations with the Bank of Montreal. Asta Funding was the first write-up on this blog more than two and a half years ago. It was at the time a high conviction idea and it constituted a big part of my portfolio, but unfortunately the performance of the stock was mediocre. While my portfolio gained more than 100% in this time frame my investment in Asta Funding returned just 4.3%.

Looking back I think I was partially unlucky, but also partially wrong. In my initial analysis I overstated the upside potential because I didn’t account for G&A expenses (rookie mistake). This is something I realized long ago, and also taking this in account there appears to be significant upside potential based on the asset value of Asta Funding.

The bigger problem is that management is less shareholder friendly than I thought. My thesis was that Asta Funding was undervalued because of the complex balance sheet, but I now think that the discount exists mostly because of how management is running the company. While I could have spotted some of these issues back in 2011 I think this is also a bit of bad luck. At the time management looked a lot better because they just announced a big share repurchase program that was also (partially) executed after some delays. Unfortunately it now seems that everybody at Asta Funding is getting paid well, except shareholders: they even cut the dividend that was pretty mediocre to begin with…

I still think that at current prices Asta Funding is interesting, but I prefer opportunities where I have more faith in how fair the management team is.

Disclosure

Author has no position in Asta Funding anymore